While the economies of the us, Europe and Japan are still struggling to emerge from their post-2008 recessions, to date China has continued on its path of upward growth, apparently undaunted by the global financial crisis. In 2009 the prc overtook Germany to become the world’s largest exporter of goods, with 34 firms in the Fortune 500. The market capitalization of Chinese firms in the ft 500 was second only to that of American firms, while in the banking sector, the top three positions were occupied by Chinese institutions. Indeed, it has been suggested that the prc has used the financial crisis to embark on a buying spree of western companies. In the autumn of 2009, Fortune ran a cover story under the banner, ‘China Buys the World’, with the sub-heading: ‘The Chinese have $2 trillion and are going shopping. Is your company—and your country—on their list?’footnote1

In fact, Chinese companies face enormous competitive challenges in operating on the international stage. Contrary to the belief of mainstream economists that opening up developing economies would provide opportunities for indigenous firms to catch up with those of high-income countries—a perspective epitomized by Thomas Friedman’s 2005 The World is Flat—the three decades of globalization in the run-up to the 2008 financial crisis witnessed an unprecedented degree of international consolidation and industrial concentration.footnote2 This process took place in almost every sector, including high-tech products, branded consumer goods and financial services. Alongside a huge increase in global output, the number of leading firms in most industrial sectors shrank.

This is not inconsistent, of course, with the existence of numerous firms that employ a large number of people, yet produce a relatively small share of global output, for sale mainly to poor and lower-middle income consumers. In the mining industry, for example, a handful of firms employing highly skilled labour and large-scale complex equipment accounts for the lion’s share of internationally traded coal, iron ore and other mining products. These companies have a total of a few hundred thousand employees and sell mainly to multinational customers in the advanced-industrial sector. In addition, there are tens of thousands of small-scale mines around the world that employ many millions of workers, typically in dangerous conditions, using simple extraction methods; they sell mainly to small-scale local customers in the informal sector, who, in turn, sell their low-quality products to poor people. But the ‘commanding heights’ of the world economy are almost entirely occupied by firms from high-income countries, whose principal customers are the global middle class. In many sectors, two or three firms account for more than half of total sales revenue (see Table 1, below).

In this context, well-known firms with superior technologies and powerful brands have emerged as ‘systems integrators’, at the apex of extended value chains. In the process of consolidating their lead, these giant companies exert intense pressure upon their suppliers, further increasing concentration as components’ firms struggle to meet their requirements. This ‘cascade effect’ has profound implications for the nature of competition and technical progress. It also means that the challenge facing firms from developing countries is far greater than at first sight appears. Not only do they face immense difficulties in catching up with the leading systems integrators, the visible part of the ‘iceberg’ of industrial structure. They also have to compete with the powerful firms that now dominate almost every segment of global supply chains, the invisible part of the ‘iceberg’ that lies beneath the water (see Table 2, below). Thus, just two firms produce 75 per cent of the world supply of braking systems for large commercial aircraft; three firms produce 75 per cent of constant-velocity joints for automobiles. Companies from developing countries are trying to enter the ‘global level playing field’ at a time when the consolidation of business power has never been greater.footnote3

The high degree of concentration in terms of market share that emerged in the era of globalization has been accompanied by an equally high degree of concentration in technical progress. Three sectors dominate overall investment in R&D, accounting for almost two-thirds of the total investment by the G1400, the world’s top 1,400 firms. These sectors are technology hardware and equipment, together with software and computer services, which account for 26 per cent of G1400 R&D investment; pharmaceuticals, healthcare equipment and services, which get 21 per cent; and autos 17 per cent.footnote4 As a further illustration of core consolidation, companies from the us, Japan, Germany, France and the uk account for 80 per cent of the G1400, while within this group, the top hundred firms account for 60 per cent of total R&D investment.

How has the financial crisis affected the ongoing process of global concentration? Although the value of mergers and acquisitions fell steeply alongside the collapse in stock markets from September 2008, in real terms there was a large amount of M&A activity over the three-year period of 2007–09, and plenty of opportunities to acquire assets relatively cheaply as the crisis intensified. There were 169 cross-border mergers and acquisitions valued at over $3 billion in 2007–08, of which just eight involved companies with headquarters in low and middle-income countries.footnote5 The pharmaceutical sector saw around twenty mergers and acquisitions valued at over $1 billion between 2007 and 2010, and there was a spate of mega-deals in it.footnote6 None of these involved firms from developing countries acquiring firms in the advanced-capitalist core; indeed the foremost developing-country pharmaceutical firm, Ranbaxy, was acquired by Japan’s Daiichi Sankyo.

It was in the financial sector, of course, that the most dramatic series of mergers and acquisitions took place. In the heat of the crisis, governments in the high-income countries ‘circled the wagons’ around their own financial institutions and encouraged a round of high-speed buy-outs that would have been unthinkable only a few months before. JPMorgan acquired both Bear Stearns and Washington Mutual; Bank of America acquired Merrill Lynch; Wells Fargo acquired Wachovia; bnp Paribas acquired the main part of Fortis; Lloyds tsb acquired hbos; Nomura and Barclays Capital divided Lehman Brothers between them; Santander acquired abn Amro’s Latin American operations, as well as Abbey National and Bradford & Bingley; and Commerzbank acquired Dresdner Bank. The principal acquisitions were made at bargain-basement prices: in 2007, the combined market capitalization of the main target banks stood at around $500 billion; their competitors acquired them for less than a fifth of this amount.footnote7 The upshot was the further consolidation of the sector’s oligopoly. In 1997, the top twenty-five banks held 28 per cent of total assets of the thousand largest banks; by 2006, their share had risen to 41 per cent; by 2009, it had expanded further, to 45 per cent.footnote8 Once again, banks from developing countries played no role whatsoever in this process.